What Would a Facebook Ad Network Look Like?

Facebook is keeping the door open to an ad network. Its recently updated Data Use Policy says, "We may serve ads, including those with social context (or serve just social context), on other sites."

But "may" doesn’t equal "will." In conversations with AdExchanger, Facebook observers place bets on if and when Facebook will launch an ad net - and if so, what it should/could/will look like.

Near-Term Priorities Don’t Favor an Ad Net Strategy

David Fischer, Facebook’s VP business and marketing partnerships, recently gave a stock response to the ad network question. "We're not working on anything like that now," he told the crowd at AdAge’s digital conference. Of course Google said the same thing about behavioral targeting – until it began offering behavioral targeting. And Yahoo said it about selling its search business – until it sold its search business.

But there are good reasons to think Fischer told the simple truth: Facebook is not developing an ad network at this time.

"I don't have any doubt that Facebook could power a network on the open web, and that it would be a great product, but I don't think they will," said Adam Cahill, EVP, co-media director at Hill Holiday. "My sense is that their entire premise as it relates to advertising is that the banner-based model the web has grown up on is fundamentally flawed. I think their focus is strictly on creating what they think is a new and better way to do advertising, and that this will happen within the walls of Facebook, where it can be controlled and monetized."

Cahill continues, "There’s a lot of talk lately about the idea of ‘native advertising,’ and I think Facebook is focused in this direction, not on making ads on the open web marginally better."

Sean Muzzy, managing director at Neo@Ogilvy, said, "Is it possible? Yes. But in terms of where they’re heading… blowing out the whole stories angle and building up the mobile offering, those seem to be areas they’re focusing on really heavily. Companies like Facebook and Twitter have done a really good job at leveraging their user base to create new ad products that didn’t exist before. It’s a great thing for the industry and when you talk about networks…to me it looks like they have their hands full doing the other stuff."

Rob Leathern, CEO at social ad data provider Optimal, agrees, noting Facebook is obsessed with mobile right now. He argues the company won't attempt to replicate an ad network model that is not likely to achieve the scale of a Google AdSense in terms of behavioral data and optimization – at least not before it masters a native format that can achieve "word-of-mouth at scale."

"It’s highly unlikely Facebook is going to do any web ad network that resembles anything similar to the way Google [AdSense] works," Leathern said. "Facebook’s ad strategy comes down to three things… One is the social graph, two is the interest graph… three is location…Those three things together will form the nexus of Facebook’s strategy and is an important reason mobile’s a big deal for them."

And Yet…

It’s certainly true that Mark Zuckerberg has prioritized mobile while being relatively non-committal about ad platforms. But he has offered clues. On the pre-IPO road show he has discussed creating a “transformative” advertising experience (Reuters), language that strongly calls to mind the Google-led search revolution.

While not "transformative," a Facebook ad network makes a certain kind of sense. You just have project into the future a few years and squint a little.

One believer is Jeff Lanctot, chief media officer at Razorfish, who says, "For a network to be successful there must be a differentiated value proposition. The data Facebook has would be a powerful differentiator. While they’re still in the early stages of their advertising business on Facebook - they need to nail that first - because they have such a powerful differentiator, a network is likely in the future."

Alternatively, Facebook could roll out an ad net to buy itself time with investors while it perfects its native ad approach. There’s still a large gap between the revolutionizing potential of the company’s native social advertising and the fulfillment of that potential. As WPP CEO Sir Martin Sorrell stated just last September, "I have some fundamental doubts about the ability to monetize social platforms... it is dangerous territory if you try to over-monetize it."

If his doubts are justified, and Facebook fails to develop a killer app for social marketing on investors’ timetable, an ad network strategy could ramp up revenue in the mid-term by greatly expanding saleable inventory - thus giving Facebook breathing room.

The infrastructure already exists, and Facebook won’t face a huge pitch to publishers since more than 250,000 sites have integrated its social plug-ins. It has other forms of off-site integration as well, such as its tight search relationship with Bing. Indeed, Bing itself could be a major ad network partner.

Lanctot said, "Users are accustomed to seeing Facebook logins on some sites. I don’t think it would be a shock to the system to see Facebook ads on those same sites. The notion of pervasive Facebook is starting to take hold, and an ad network would be a natural evolution of that."

Key Considerations

The devil's in the details. If and when it launches an ad network, Facebook will have to take a few things into account. Would Facebook allow third party impression tracking, as it does on Facebook.com (but only for negotiated CPM buys)? IAB standard ad sizes?

Open vs closed:Sky Holden, VP of sales for 33Across, says, "My guess is that if they move in the network direction, they will start off closed and then gradually open up. This is a pattern that they have followed over the years, such as with the newsfeed, Beacon, privacy controls, etc. And if that happens, it will be important for them to do so in such a way where they won’t look they’ve have caved in to the needs of investors."

Rick Corteville, CEO of digital agency Luxus, sees a more restrictive approach, "We at Luxus see the network being semi-closed where you have to 'uncheck' the sites you don't want in your buy. With a semi-closed network, you also won't be able to see the breakdown of performance by individual sites. You'll have to use a site side analytics system like Omniture to understand where your traffic is originating. Finally, tags from 3rd party ad-serving systems won't be accepted; all impressions will be served directly by Facebook."

Ad formats: Facebook will have to decide whether to tweak its native formats to match IAB standard sizes – or convince the IAB to make its own formats as industry-wide standards. Corteville says, "From a creative ad format standpoint, Facebook will probably start with native formats, not immediately accepting IAB units."

Data Use and Security: An ad network is inherently less secure than a site-side ad offering. Says Leathern, "Obviously Facebook is very concerned about privacy as they should be. They don’t want to allow third parties to do anything cookie related or ID related with their users."

Ad Ops Hassles:An ad network strategy would require Facebook to traffic the ads, monitor fraud, manage publisher payments, and address adjacency fears (both publisher and advertiser). All of which would require manpower and development resources.

However, "If the opportunity is big enough, it’s worth doing," said Lanctot.